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Rumors of a Deal

December 22, 2012Paul Krugman

It sounds as if Ezra Klein is hearing more or less the same things I’m hearing: Republicans willing to give up a lot more on tax rates, although not fully undoing the Bush tax cuts in the 250-400 range; additional tax hikes via deduction limits in a form that hits the wealthy, not the upper middle class (28 percent and all that); unemployment extension and infrastructure spending; but “chained CPI” for Social Security, which is a benefit cut.

Unlike what we’d heard from Republicans before, this contains stuff that Obama can’t get just by letting us go over the cliff: more revenue than he could get just from tax-cut expiration, unemployment and infrastructure too. But it has a cost, those benefit cuts.

Those cuts are a very bad thing, although there will supposedly be some protection for low-income seniors. But the cuts are not nearly as bad as raising the Medicare age, for two reasons: the structure of the program remains intact, and unlike the Medicare age thing, they wouldn’t be totally devastating for hundreds of thousands of people, just somewhat painful for a much larger group. Oh, and raising the Medicare age would kill people; this benefit cut, not so much.

The point is that we shouldn’t be doing benefit cuts at all; but if benefit cuts are the price of a deal that is better than no deal, much better that they involve the CPI adjustment than the retirement age.

But is this rumored deal better than no deal? I’m on the edge. It’s not clear that going over the cliff would yield something better; on the other hand, those benefit cuts are really bad, and you hate to see a Democratic president lending his name to something like that. There is a case for refusing to make this deal, and hoping for a popular backlash against the GOP that transforms the whole debate; but there’s also an argument that this might not work.

I want to see more — and also want to see whether the Republican crazies scuttle the whole thing before it even gets off the ground. If they don’t, there will be some serious agonizing for progressives, yours truly included.

The preceding article originally appeared here at Paul Krugman’s New York Times blog.